Four Tips For Applying For A Bad Credit Mortgage
If you are considering the purchase of a home, but your credit score is poor, then you may consider applying for a bad credit mortgage loan. This allows you to receive a loan, typically with a higher interest rate even with your bad credit. Here are four tips for doing this:
- Only Make it a Temporary Solution: When you apply for a bad credit mortgage, make a commitment to improve your credit over the next two years so that you can refinance by this time. Don't pay the same interest that you are paying with a bad mortgage home loan for more than two years. This just means that you will continue paying much more than what the home is actually worth because of the high-interest rate. If you are able to repair your credit enough, you can potential cut the interest rate in half.
- Choose an Adjustable Rate Mortgage: An adjustable rate mortgage means that you will be paying high interest, much higher than a mortgage that does not have an adjustable rate, but you will be able to make reasonable mortgage payments each month. With lower mortgage payments, this can be more manageable for you and ensure that you don't make the mistake of missing any payments, which will just lower your credit even more.
- Don't Choose a Prepayment Penalty: Always be sure that your bad credit mortgage does not come with a prepayment penalty. If you are able to pay off your loan quickly, then the penalty will ask that you pay up to 6 months of interest after paying off the total amount of the loan. This just means that you are making an additional 6 payments for no real reason, but simply to give the lender more money. If you pay off the loan early, you want to be sure that no additional interest is added on to the loan as a penalty fee.
- Consider a Co-Signer: Before you even consider signing up for a bad credit mortgage, consider asking a relative if they will consider being a co-signer for you on an FHA home loan. This would allow you to avoid a bad credit mortgage and receive an FHA loan, which will have a much lower interest rate for you.
By following these four tips, you can be sure that you choose the best home loan for you and that you are able to move into a home that you can afford each month, even with bad credit.